Keystone's January Seasonality

January begins and the New Year's resolutions are long forgotten. The year always starts out with chatter concerning the January Barometer, January Effect and other rules of thumb.  The January Effect is where small caps tend to have large gains between mid-December and during January of each year. So try to avoid shorting small caps in this area. The January Barometer is correct two-thirds of the time and it says that whichever way January goes, so goes the markets. Other traders follow the adage that the way the first five days trade are the way that January will trade, and thus the year.

Further, on the first day of trading, if the day is up, then the markets are up about 80% of the time for the year. If the first day of trading is down, the forecast is a coin flip. Shipbuilders like to move up in February and FDX and UPS typically follow after that so January is the time to watch and poke around this area for longs. The shipbuilding sector also greatly effects the KOSPI. Technology tends to top at the beginning of the year, the Q4 tech party quarter is over and Q1 begins.  Beef typically rallies from now into mid-April and this is of particular interest this year due to the droughts.

Energy typically bottoms in January-February. There is a large chip conference in early January so watch the SOX and SMH, as well as all the other individual semiconductor stocks.  A JPM Healthcare Conference also typically occurs in January so the healthcare stocks are in play. There is also an ETF Conference that typically occurs in January each year.  The U.S. dollar tends to be strong at the start of the year.

The markets are typically up 0.9% in January.  January is typically the top month for the Nasdaq.  January is the fifth best month for the year for the SPX and the sixth best month of the year for the Dow Industrials. The best January was 1976 up 14% and worst January was 2009 down 9% (right before QE1). January tends to account for about 25% of the yearly move of the major indexes. January kicks off the Q1 earnings period which typically returns 2.1% (January thru March).

So its typically blue skies for long players in January as new money is put to work, especially the first few days of January. Markets are closed on Martin Luther King Day, 1/21/13, Monday, so some buoyancy may be expected on 1/17/13 and 1/18/13.  OpEx is 1/18/13 and is usually an up day. A low on Tuesday, 1/15/13, should lead to a high on Wednesday, 1/16/13. The FOMC two-day meeting is on 1/29/13 and 1/30/13. The last two days of the month tend to be weak and usually fall about 0.4%.